The country that works a lot better for some

Originally published on March 6 on my blog for Inside Housing.

If you are under 22 and you need help with your housing it all depends on who your parents are.

Three measures from George Osborne Budgets apply from next month: the cut in housing support for 18-21 year olds; the Lifetime ISA; and the cut in inheritance tax on main residences.

This time last week hopes were high that the government would row back on the first of these. A government source told The Observer that ministers and civil servants dealing with the cut in housing support ‘hate the policy’. Despite this the regulations implementing it were laid on Friday, a day when parliament was not sitting.

There is no official explanation of the move on the DWP website but a spokesman repeats previous lines about ensuring that 18-21 year olds ‘do not slip straight into a life on benefits’.

The regulations do at least attempt to address some of the criticisms made since the policy was first announced and they will only apply in universal credit digital service areas. But as Giles Peaker shows at Nearly Legal, it’s not hard to find holes in them.

For example, there will be an exception for people responsible for a child but not for women who are pregnant. There may be cases where it is ‘inappropriate’ for someone to return home if there was a serious risk to their physical or mental health but it’s far from clear how that judgment will be made.

And will the regulations really be implemented as the government intends? The experience of people who have been sanctioned having their housing benefit wrongly stopped as well suggests they will not.

And how many 18-21 year olds, let alone vulnerable 18-21 year olds, will know enough to challenge decisions on their benefits?

The obvious precedent is not a happy one. In the late 1980s the new housing benefit was an administrative fiasco and the government removed entitlement to income support for under-18s.

The result was a surge in homelessness and rough sleeping, especially among care leavers. Teenagers who had suffered abuse by their parents were theoretically exempt from the cuts but they had to prove severe hardship or estrangement under tests so onerous that many simply gave up.

And what about the wider impact? Will landlords rent to anyone under 22 without additional assurances – such as a parental guarantee?

As Richard Lambert of the National Landlords Association puts it: ‘Never mind the nuances, all landlords will hear is that 18-21 year olds are no longer entitled to housing benefit.’

Will people be able to claim universal credit at all, given you have to have a tenancy to make a claim? Heather Spurr explains more about how things will work (or not) on Shelter’s policy blog.

The policy will save just £40m a year on government figures and will almost certainly be much less than that once knock-on effects such as increased homelessness are taken into account. Research for Centrepoint concluded that net savings will be just £3.3m – only 140 additional young people would have to become homeless before the policy cost rather than saved money

Contrast that with something else that starts next month: the Lifetime ISA. This is a tax-free savings account for people aged 18-40 that can only be used to buy a home worth £450,000 that must be to live in rather than a buy to let or kept until you are 60. The government will 25 per cent of whatever you pay in up to a maximum of a £1,000 top-up to an annual contribution of £4,000.

It all sounds like a good deal for Generation Rent, which is exactly how Osborne presented it when he announced it in March 2016. But the cost is estimated at £170m next year rising to £850m in 2020/21, or £1.9bn over the next four years.

Finally, the inheritance tax cut will introduce an extra £100,000 exemption per person when a main residence is left to a direct descendant. This will rise to £175,000 per person by 2020/21 and will cost up to £1bn a year. Added to the existing allowance of £325,000 per person, this is designed to fulfil the Conservative manifesto pledge to exempt estates worth up to £1m from inheritance tax.

At first sight these three policies may not seem to have much in common – but housing is the connection.

At one end of the scale, you have someone under 22 who cannot live in the parental home or maybe has no parents. Things are already hard because of the benefit freeze and the shared accommodation rate but from April they will not get any housing support unless they are treated as an exception.

Go up the income scale and you come to people looking to escape from Generation Rent by scraping together a deposit to buy their first home. The Lifetime ISA sounds like a good idea but who can afford to save £4,000 a year to get the maximum £1,000 top-up from the government?

The answer, as Claer Barrett points out in the Financial Times, is people with rich parents. They could simply give their kids the money for the deposit but why not get the taxpayer contribution on top? By 2021 they will have a deposit of £20,000. And from next month it will be even easier to pass property wealth down the generations free from inheritance tax.

Put all that together and it means that the government will cut £1 billion a year from the taxes of people who inherit property from home owning parents. They can then use some of that £1 billion to open Lifetime ISAs for their children topped with free money from the government to buy homes they could have afforded anyway.

The country that works for everyone works a lot better for some people than others.